The change in Turkey's economic performance trend is favourable and can already be seen in the insurance industry, which experienced positive real growth in 2020, based on the data available at the end of the third quarter of last year, says Mapfre Economics.
In its report entitled “2021 Economic and Industry Outlook”, Mapfre Economics notes that the Turkish economy experienced a marked improvement following the relaxation of measures taken in light of the COVID-19 pandemic.
Furthermore, economic forecasts for 2021 anticipate GDP growth in the range of 2.8% (base scenario) to -1.8% (stressed scenario), compared to an estimated growth of 1.2% in 2020, making Turkey one of the few countries in the world whose economy has not shrunk as a result of the pandemic.
“This growth seems to indicate a shift in trend in light of the sharp slowdown that the Turkish economy has been suffering due to its structural imbalances, in particular, its foreign private debt in dollars coupled with its currency's strong tendency to depreciate, says the report.
Inflation and impact on insurance industry
However, inflation remains high and is on the rise again. Together with the depreciation of the Turkish currency, this could change the outlook and have a negative impact on the profitability of the insurance industry, particularly non-life business because of the increase in claims that this situation entails.
The central bank is taking action by raising interest rates again, which may help to partially offset these adverse effects by propping up the financial performance of these lines of business.
Charts by the European Insurance and Occupational Pensions Authority (EIOPA) show increases rise in short-term risk-free interest rates with a rate curve that shows a negative slope over all tenors. This interest rate scenario remains favourable for the marketing of life savings insurance products with renewable short-term guaranteed rates that enable the guaranteed rates to be revised at each renewal, says the report.
The emerging trend change in economic growth also favours this type of business, which experienced significant real growth in its premium volume in 2020, according to the data available at the end of the third quarter of last year.